Strategic Report Shows Degree of Concern About Israel’s Future

The National Economic Council has highlighted the weak links the state must address if it wants to prosper – including tackling discrimination against Arab men, a north-south divide and the treatment of nongraduates

On Sunday, the National Economic Council presented the cabinet with its assessment of Israel’s strategic socioeconomic situation over the next five to 15 years. Even before the cabinet meeting, Social Affairs Minister Haim Katz went on the attack. He was furious the assessment didn’t include goals in the areas of relieving poverty and fighting inequality, and said he would vote against adopting the council’s assessment.

The Economic Council (which is part of the Prime Minister’s Office) didn’t understand the fuss, and reminded Katz that the program was written in coordination with the various government ministries – all deputy directors-general for strategy in the ministries were partners in preparing the plan – and that treating inequality was included in the plan’s long-term aspects. The plan looks 15 years into the future, and will necessarily be different than the government’s goals for the next year. [The discussion was put on hold until Katz and the council smooth out their differences.]

Still, the political furor was a refreshing change. This is only the second time that the cabinet has discussed a strategic plan for the country, and it got the full attention of all ministers – for better or worse. The highest hurdle in the strategic plan’s path was to attract the attention of the ministers and get them to commit to the process, even though they won’t be the ones to reap the benefits or receive the credit – and in this they succeeded.

A forecast that spells bankruptcy

However, the impression left by the strategic assessment is one of unease. By its nature, it’s an assessment that focuses on the most serious threats to Israel in the coming decades, so it also deals with our weakest links. If these weak spots are not dealt with – and this treatment must start immediately, since this is a very long-term process – Israel may not survive.

An analysis from the chief economist’s office, which was quoted in the strategic plan, states that if the weaker sections of Israeli society – the ultra-Orthodox (also known as the Haredim in Israel) and Arabs – are not properly addressed, the country will see its state budget deteriorate into a deficit of 100 billion shekels ($26 billion) a year, or 9% of gross domestic product, by 2050. This is a forecast that means bankruptcy.

There’s nothing new in stating that the Haredi and Arab populations, which together are forecast to make up some 50% of the population by 2059, are the weakest points in Israeli society and the economy. However, they are also its greatest opportunity. The assessment presented to the cabinet on Sunday makes clear how difficult the situation of the two groups is – especially that of the Arab community.

The poverty level among the Arab community may be lower than that among the Haredim (54%, compared to 60%), but that’s mainly because of the extremely high number of children in ultra-Orthodox families. Israel is exceptional in that its natural rate of population growth is highest among poorest families; in most OECD nations, it’s usually the rich that have the most children. This relatively high number of children among the poorer communities explains half of the gap in inequality between Israel and the developed world.

Another figure in the Arab sector’s favor, compared to the Haredim, is the high level of workforce participation among Arab men. But it turns out this advantage is not enough to improve their situation, since discrimination against Arabs offsets a large part of this advantage in workforce participation. The average wage for Arabs, in fact, is the lowest for any group in Israel.

Arab women earn a fraction less than Haredi women. But what really stands out is that the wages of Arab men – whose work participation is very high – is significantly less than that of ultra-Orthodox men.

An Arab man earns, on average, about 7,000 shekels a month, compared to 9,500 shekels for a working Haredi man. The strategic assessment states that “among Haredim (men and women), the difference in average income stems mainly from the low level of hours worked, while among Arabs the difference stems mostly from a low hourly wage.” Basically, Haredim earn so little because they don’t work many hours, while Arabs earn so little because they receive very low wages for the hours they put in.

Different underclasses

The Arabs are graduates of the state school system, and participate in both the labor and education markets. This is the opposite of the Haredim, who study in schools that don’t teach the core curriculum and, later, prefer not to work and continue learning in a yeshiva. As a result, they end up entering the labor market at a relatively advanced age, and in jobs that are appropriate to their partial education. Even though the Arabs are better educated and work more, they still earn less per hour than the Haredim – which says it all.

Of course, this is also due to the low level of productivity among Arab workers, which is partly because the Arab state school system is failing and doesn’t provide a quality education – but it’s difficult to imagine this low level of productivity being lower than for Haredim. Consequently, there’s no other way to interpret this data except as proof of the serious discrimination against Arabs in the labor market – so serious that they find themselves in even worse shape than the Haredim when it comes to wages.

More evidence to reinforce suspicions of workplace discrimination against Arabs comes from the strategic assessment’s analysis concerning the inequality between the outlying areas and the center of the country. It turns out that even in the underdeveloped Israeli periphery, there are still class differences.

For example, the Negev is an outlying area on the rise. Over the coming decade, the government plans to spend 46 billion shekels on enormous projects to develop the Negev, including the transfer of major Israel Defense Forces bases to the south; turning Be’er Sheva into a cyber capital; building industrial parks; encouraging renewable energy; investing in the Bedouin community (1.3 billion shekels); and, of course, a huge investment in the transportation infrastructure.

All these investments together are expected to change the face of the region – which is already on a roll – and the workers there, who currently receive relatively low salaries. In comparison, over the same period the government plans to invest only some 12 billion shekels in the north – all of it in transportation infrastructure. There are no government investments planned in employment or other major projects for the north.

Consequently, the north is the weakest district in Israel today. It suffers from negative migration, with 18% more leaving than arriving (among the Jewish population only). Wages are the lowest in Israel, averaging only 6,500 shekels a month, compared to 7,500 a month in the south.

It’s a surprise to discover that it’s actually the verdant north, much closer to the center of the country than the arid Negev, that has fallen further behind. Again, it’s impossible not to suspect a link between this and the fact that the Galilee is home to a large portion of the Arab population.

The plight of the weakest

The assessment examines the especially dire situation among the weakest and poorest parts of society – in particular, of Israeli Arabs – and proposes to deal with some of the failures through developing the north; focusing on encouraging quality employment for women, Haredim, Ethiopian immigrants and Arabs; and a national plan to improve the educational system for the country’s Arabs.

Alongside all these recommendations, the report also shines a light on the difficult situation of the poorest and weakest workers in Israel. Workers who weren’t deemed strong enough to be accepted into academic institutes, and made do instead with postsecondary professional training, find themselves in the worst shape. The pay for professionals who aren’t graduates is almost the lowest among all OECD nations: a return of only 12%, compared to 27% on average for the OECD, and 46% in Germany. This figure tells us that Israel takes care to develop and nurture only the strongest, with a university education, while it abandons the weaker sections of society. If Israel wants to continue to prosper, it must also change this.